5m caught in Brown's tax net

GORDON Brown has snared nearly five million people - equivalent almost to the population of his native Scotland - in his tax net since Labour came to power eight years ago.

This is despite regular, bravura claims that his policies have helped hard-working families at the bottom of the pay scale. Worse, these people will now be exposed to any tax increases that might be needed if the Chancellor has to find more money to meet his spending commitments.

As tax allowances have failed to keep up with the rising earnings, there has been an 18% increase in the number paying income tax since 1997.

This has fuelled a 100% surge in revenue from income tax over the same period - a rise likely to be highlighted by new Government figures this week.

In the financial year 1996-97, when the Conservatives were last in power, there were 25.7m income taxpayers. Now, 30.5m are in the tax net - a jump of 4.8m.

Even if the total of 2.1m new jobs created during the same period is ignored, it still means that 2.7m people have been conscripted to the army of taxpayers in the past eight years - more than six times the population of Manchester.

Budget increases in tax allowances are linked to prices rather than wages and, since 1997, prices have risen by 21% while earnings have jumped 41%. So as people try to better themselves, they are sucked ever-deeper into the tax system - an effect known as 'fiscal drag'.

Mike Warburton, tax partner at accountant Grant Thornton, said: 'Much of this has been caused by fiscal drag. You need to work for only 30 hours a week at the minimum wage to be liable for the basic rate of income tax.'

Conservative Treasury spokesman Philip Hammond called on the Chancellor to simplify the 'complex and bureaucratic' tax system. Income tax brought in £118.4bn in 2003-04. That is predicted to rise to £138.1bn by 2005-06, equivalent to 11.1% of gross domestic product.

The dramatic widening of the income tax base means that if, as feared, Brown needs to raise taxes to meet his spending commitments, the yield from such increases will be correspondingly greater. And growth figures this week are likely to trigger alarm bells for the Chancellor's tax and spending plans.

Friday's preliminary estimate for the rise in gross domestic product in the second quarter of this year is expected to come in at about 0.5%. Brown would need to hit 40-year records for the rest of the year to reach his forecast of growth of three to 3.5% this year. City forecasters expect growth this year to be closer to 2.4%.

• A deepening malaise on the High Street - even before the London bombings - is expected to be highlighted in figures this week for retail sales in June.

Higher taxes and dearer petrol and mortgage payments have sucked purchasing power from households, and weakening property prices have thinned out the reassuring cushion of money that has supported heavy consumer spending.

Tim Denison of retail consultant SPSL said: 'I would expect the value of retail sales in June to have fallen by 2% compared with 12 months previously.'